Executives in the firing line after 'strategic error’

The top duo at BAE Systems face a struggle to rebuild their reputations after
putting the company into play via a botched £30bn merger, shareholders,
analysts and politicians said today.

BAE chief Ian King has previously warned the defence industry is 'not for the faint-hearted'Photo: EPA

By Alistair Osborne, Helia Ebrahimi and Angela Monaghan

8:33PM BST 10 Oct 2012

Sympathy was in short supply for BAE chief executive Ian King or chairman Dick Olver after the collapse of their proposed tie-up with EADS exposed the UK defence group’s strategic weaknesses.

“The board has to get its act together or it will face the firing line,” said one irate top 10 investor. “It was a half-baked deal that was badly handled. Not just that the political tone was misunderstood but that shareholders were woefully ignored.”

Benjamin Fidler, an analyst at Deutsche Bank, said: “The key challenge for King and BAE management is rebuilding credibility and trust in the BAE standalone earnings and dividend story.

Are those numbers still sustainable?”

He said Mr King needed to clarify whether he still thought BAE was capable of annual dividends of around 20p a share in the face of looming defence cuts.

Zafar Khan, an analyst at Société Generale, said it was too late to revert to the old strategy. “Shareholders are after him [King] now. The agenda has moved on,” he said. “He’s put the business into play but he’s got no one to play with. His fiduciary duty is to maximise shareholder value and that means breaking up BAE.”

Ben Wallace, the MP who organised 45 fellow MPs to sign a joint letter to David Cameron seeking stronger safeguards for the deal, said: “The BAE board should now reflect long and hard at what their strategic error could mean for the company’s future. If they have put at risk my constituents’ jobs and fatally wounded the UK’s jewel in the manufacturing crown, then they should consider their position.”

The top 10 shareholder said Mr Olver’s position was under scrutiny. “When Dick Olver took over he set about making a positive difference and improving relations with shareholders. This deal has taken them a big step back,” he said.

Asked if he would resign, Mr Olver said “no” but noted: “I serve at the wish of my board and shareholders.” He added that Mr King was a “hugely competent executive”.